While insurance industry officials says car insurance is more widely available and affordable than ever, a new report by the Consumer Federation of America found some auto insurers charge higher rates to high school graduates and blue-collar workers.
In a study released in July 2013, the CFA announced that some insurers - GEICO, Progressive, Liberty Mutual and Farmers – charge higher rates to drivers with less education and lower-status jobs.
The CFA study, conducted in May and June of 2013, examined the use of education and occupation by the 10 largest auto insurers – State Farm, Allstate, GEICO, Progressive, Farmers, USAA, Liberty Mutual, Nationwide, Travelers and American Family – in 10 major urban areas; Hartford, Louisville, Oakland, Baltimore, Atlanta, Chicago, Denver, Houston, Phoenix and Seattle. The driver studied was a 30-year-old single woman who had driven for 10 years with no accidents or moving violations.
In the report, the CFA found GEICO often charges a factory worker with a high school degree higher annual premiums than a plant supervisor with a college degree. For example, the factory worker in Seattle would pay $870 in annual premiums compared to the plant supervisor who would pay just $599.
The analysis found that Progressive – involving the same hypothetical factory worker and hypothetical plant supervisor – charges 33 percent more in Baltimore, 14 percent more in Houston, 9 percent more in Louisville, Ky. and Denver and 8 percent more in Oakland, Calif.
The report also found Liberty Mutual charges high school graduates higher annual premiums than college graduates – 13 percent more in Baltimore and Houston, 12 percent more in Phoenix and 10 percent more in Hartford, Conn.
The study found Farmers made distinctions between certain professionals and civil servants and “others.” In some cities, Farmers charged these “others” – those who are neither professionals nor certain government workers -- 5 percent higher rates.
How insurers determine your car insurance rates
Insurance industry officials challenged parts of the study, noting they set rates based on state regulations and offer many ways for consumers to save money on their premiums.
“To determine the price of insurance for individual consumers, we rely on a wide range of criteria, each of which is…supported and permitted by state regulations,” says Glenn Greenberg, Liberty Mutual Insurance spokesman.
Jeff Sibel, spokesman for Progressive, says that while the company works to price each driver’s policy as accurately as possible, there are ways for consumers to take their insurance rates into their own hands by using tools like usage based insurance. Usage based insurance, also known as pay as you drive insurance, is where the cost of your car insurance is dependent on the car you drive, how many miles you drive, and how safely you drive.
“(Snapshot, Progressive’s pay as you drive program) gives drivers more control over their car insurance costs by offering personalized discounts based on their actual driving behavior,” Sibel says.
GEICO and Farmers didn’t respond to requests for comment.
Robert Hunter, director of insurance for the CFA in Washington, D.C., says it’s “outrageous” that auto insurance companies would throw up such barriers to purchasing car insurance.
“It’s simply not fair for sellers of any product to discriminate on the basis of education and occupation, especially when those with less education, lower-paying jobs and lower-incomes are being required to pay these higher prices by the very states with the power to control abuses,” Hunter says.
In response, the Insurance Information Institute, a nonprofit organization supported by the insurance industry based out of New York City, issued a statement claiming the highly competitive insurance marketplace is making coverage more widely available and affordable for drivers.
“(The competitive insurance marketplace has) created a favorable situation for the nation’s drivers when considering what they’ve had to pay for other products and services essential to their daily lives,” says Robert Hartwig, Insurance Information Institute president.
Alex Hageli, director of personal lines policy for the Property Casualty Insurers Association of America says that once again the CFA has released a study showing insurers are pricing insurance based on something other than state laws.
“This despite the fact that laws in all 50 states require insurers to charge (state law) appropriate rates,” Hageli says.
For example, Hageli says that officials charged with enforcing these laws in Maryland and New Jersey recently reviewed insurers’ use of rating factors such as education and occupation and found such use to be justified.
In response to the report, Hunter says the CFA is calling on state legislators and insurance regulators to ban the use of these discriminatory factors when insurers are setting car insurance rates.
“We are standing by this study and requesting action to end these unfair practices,” Hunter says.